StartupCentral

With India’s GDP growing at the rate of 7-8 per cent, it’s very difficult for startups to hire the right talent to ensure their success. The young generation of today has the choice of working for multinational companies and established Indian companies that offer good infrastructure and a comfortable working environment. On the other hand, startups run on shoestring budgets to maintain low operational costs. Startups, therefore, have the 4Ps to bank on for hiring success.

Purpose

The founding team has to sell hard to recruit the first 15 or 20 employees. Therefore, purpose – the problem that the startup is trying to solve – drive passion and enthusiasm among the first set of hires during the initial years. Social enterprises thrive in this aspect because of the nature of the problem and the ability to impact several lives through the solution.

People

Almost all recruits do look for a high energy founding team/ management to guide them during the early days. Since startups work extra long hours to compete with established companies (60-hour work weeks are not uncommon), the work culture plays a significant role in ensuring productivity. Though it’s a cliché, it’s true that great people are five times as valuable as good people.

Initial hiring is best done through referrals. Also it’s important to focus on hiring people with an entrepreneurial mindset rather than job seekers. Product specifications/ customer requirements are very dynamic during the early days of every startup, and teams that are flexible or agile create momentum faster than their competitors.

Pay

Startups find it very difficult to offer huge cash compensation in the initial years of their journey. Almost every new venture sells the value of equity to its first few employees. Unlike the US Silicon Valley, there aren’t many case studies in India where employees have realized an upside through their stock holding. Transparency about valuation step ups or flat rounds ( where the valuation remains the same in follow-on rounds of financing) and secondary sales by management teams play a great role in creating trust and comfort in the minds of employees.

Progress

The single most important factor that decides startups’ ability to retain good talent is progress. Without business progress, new companies wouldn’t be able to pay market salaries to its hires. Equity (value) appreciation stalls unless milestones are achieved. Employees show less enthusiasm to accept lower than market compensation without ESOP upsides. Fast growing startups that attain leadership status do create fatigue/hopelessness and disenchantment in the minds of the employees of their competitors.

So, Purpose to begin with, Progress at a later date, People and Pay are very critical for successful hiring. Startups need to get three out of four right to ensure they are on the right track in terms of building a winning team.

About the columnist: Sateesh Andra is a venture partner with Draper Fisher Jurvetson India. His investments include Live Media, Gingersoft Media, TopChalks and Cleartrip. Prior to Draper, Andra founded IT management software startup Euclid in the US. He has also earlier invested in US/India venture capital funds.

Early stage or growth, raising capital has been tough for almost all companies since last October. Declining venture capital and private equity investment numbers over the last several months are evidence — see the latest Grant Thornton report here. For startups, especially, raising venture capital is a challenge even in fair weather. Each stage, from seed through Series A and B, comes along with its own unique hurdles. “There are investment and operational issues at each stage, both for the entrepreneur and the investor. We need to engage in a dialogue on those issues,” says Sateesh Andra, venture partner, Draper Fisher Jurvetson, flagging off the underlying theme for TiE-ISB Connect 2009, scheduled for October 22 and 23 in Hyderabad.

The forum, in its main theme, is asking ‘The Crisis Will Pass…Will You?’ It is a pertinent question. Before the current economic downturn is out, several startups as well as a few venture capital firms, will bite the dust. And going by the rumblings that one is beginning to hear more and more in venture capital circles, the dust is going to kick up quite a storm (more on that in a later post).

Interestingly, the organizers have decided to address funding issues not only at the seed and early stages but also at the growth stage. Read the full story